Transurban looks long-term with $7b deal

Measured against the income it is currently throwing off, the $7.06 billion price the Transurban-led consortium has paid QIC for Queensland Motorways and its network is staggering, 27.5 times earnings before interest, tax, depreciation and amortisation (EBITDA).

Money-spinner: The Clem7 tunnel is part of the purchase. Photo: Glenn Hunt

Its in line with the sale prices of other high quality, long-life infrastructure assets, however. There is a limited number of them, and very long term investors are fighting among themselves to buy them.

Transurban has a 62.5 per cent stake in the winning consortium. Australian Super has a 25 per cent stake and the Abu Dhabi Investment Authority has a 12.5 per cent. All are deploying what can be described as permanent capital – money that is not being sunk into assets with a view to a quick resale, but a much longer, more reliable return that fits their longer investment horizons. What an asset returns this year or next is of less interest to them than what it can earn over decades.

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In contrast to infrastructure deals in the 90s and the noughties ahead of the 2008-2009 financial crisis, recent infrastructure deals are also not being loaded to the gunnels with debt. The debt and equity split on the Queensland deal will be 39 per cent - 61 per cent. Transurban will cover its $2.7 billion, 62.5 per cent share of the equity component with a general $2.34 billion share issue pitched at $6.75 a share, and a $400 million share placement priced at $6.95 a share to its bid partners, Australian Super and Abu Dhabi Investment Authority.

The multiple of 26 times EBITDA compares with EBITDA multiples between 8 times and about 11 times on non-infrastructure deals and company floats – multiples that have themselves roughly doubled from lows set during the 2008-2009 global crisis. As a general observation, asset multiples in the market are now above average.

Transurban and its bid partners will be looking at the long term earnings outlook for the tollroads, and comparing the price they have paid with prices paid for other top-drawer infrastructure assets, however.

The $5.1 billion sale of Port Botany and Port Kembla by the New South Wales government a year ago was priced at about 25 times EBITDA, for example, and the $1.4 billion sale of a 27 per cent stake in the Port of Brisbane 8 months later was priced at about 27 times EBITDA.

In all three bids, permanent or at least very long-term capital was being deployed. Australian Super and the industry funds manager IFM were members of the successful NSW Ports consortium along with the Abu Dhabi Investment Authority, and Canadian pension fund Caisse de depot et placement du Quebec acquired the 27 per cent stake in Port of Brisbane. Similar bidding groups will line up for the Port of Melbourne now that the Victorian government has decided to put it on the block, and a 20-plus EBITDA multiple is assured.

Queensland Motorways is in many ways a classic high-quality infrastructure asset. The state government concession to operate its two big toll roads runs for almost 40 years, twice as long as Transurban's concession to run the City Link tollway in Melbourne, its biggest asset.

The big tollroads in the portfolio are also well established. Their traffic numbers are known, not estimated, a trap for those investing in new tollroads. There is room for them to be expanded, boosting earnings and reducing the effective acquisition earnings multiple over time, and Transurban will integrate tagging and payment processing operations, creating savings that also pull the effective bid multiple down.

Infrastructure will be a deal-making hot-spot for some time as the Commonwealth and State governments look to sell existing assets to raise money for new infrastructure, and a large cast of advisers worked on the Queensland Motorways deal.

Transurban itself was advised by Lazard, a house that has specialised in the sector for more than 2 decades. Goldman Sachs, Morgan Stanley, Aquasia and King & Wood Mallesons worked on the deal for the bid consortium, and Macquarie, UBS and Allens advised QIC.